Zappos

Tony Hsieh, CEO of Zappos, learned a hard lesson from his first venture into entrepreneurship. His business sounded like it would be fun, but proved to be a disappointment. He described his experience at the recent EY Strategic Growth Forum 2014 in Palm Springs, California.

From worm farmer to millionaire

When he was 9 years old, Hsieh was living in the San Francisco area and decided to go into worm farming. His parents drove him to a worm farm and he purchased a supply of worms.

“My plan was I’d put them in my back yard; I was going to build a competitive business as they grew and bred,” he says.

But he hadn’t thought about containment, and they all escaped.

“I learned that worm farming was difficult,” Hsieh says. Nevertheless, the experience did not dampen his entrepreneurial spirit. In fact, a 1985-92 TV show called “MacGyver” about a secret agent troubleshooter who used everyday articles to solve complicated challenges defined one of the essences of entrepreneurship for him.

“My favorite thing about MacGyver was that he never had exactly what he needed, but through the combination of street smarts, creativity and optimism he’d figure out how to get a paper clip, a chair and some duct tape and make a sailboat, and by the end of the hour he would save the world and solve his problems,” Hsieh says.

“For me, that’s what entrepreneurship is all about. It’s about getting to play MacGyver, but for business. I think that’s why — whether it’s the worm farm thing or I had a pizza business in college — it was always just opportunities to be creative.”

Hsieh’s most recognizable success came by building the online shoe seller Zappos. Launched in 1999, Zappos was sold to Amazon.com for $1.2 billion in 2009 after earning revenues of $1 billion. An earlier venture, advertising network LinkExchange, was sold to Microsoft for $265 million.

Culture death killed LinkExchange

Zappos was one of some 20 ventures backed by Venture Frog incubator, an investment firm he co-founded during the dotcom boom of the late 1990s. Of those ventures, Zappos was the one that showed the most promise, and Hsieh liked the people there. That is important to an entrepreneur, he says, since it encourages the company to be fun. He says LinkExchange had ceased to be a fun place and the company culture went downhill.

“That was just because we didn’t know any better to pay attention to company culture,” he says. “In the early days it was a lot of fun. We started hiring friends and friends of friends. That strategy worked really well for us until we got to about 20 people, and then we ran into a major problem.”

The company culture then suffered. Hsieh says the group basically ran out of friends, then started hiring people based on resumes. But it didn’t understand how to integrate the new hires into the fun culture.

“By the time we got to 100 people, we had hired a lot of people that weren’t good for the culture, and so that’s why we really sold the company,” Hsieh says.

At Zappos, however, fun is written into its core values. One of them is, Create fun and a little weirdness, which he says that is just a fun way of saying the company recognizes and celebrates each person’s individuality.

“We want their true personalities to come out in the workplace, and so there’s a lot of people who are a different person at home on weekends relaxing with their friends than they are in the office, and they end up leaving a little part of themselves — or in some cases, a lot of themselves — at home,” Hsieh says.

“We want employees to bring their full selves and creativity to the office. So someone might say, ‘Let’s do a parade where we all dress up in lederhosen and pass out sausages.’ We say, ‘All right; go for it.’”

SEATTLE ― Online shoe retailer Zappos told customers this weekend that it has been the victim of a cyber attack affecting more than 24 million customer accounts in its database.

The popular retailer, which is owned by Amazon.com, said customers’ names, e-mail addresses, billing and shipping addresses, phone numbers and the last four digits of credit cards numbers and scrambled passwords were stolen.

But it said the hackers had not been able to access servers that held customers critical credit card and other payment data.

“We were recently the victim of a cyber attack by a criminal who gained access to parts of our internal network and systems through one of our servers in Kentucky,” Zappos CEO Tony Hsieh said in an email to staff which was posted on the company’s blog on Sunday.

“We are cooperating with law enforcement to undergo an exhaustive investigation,” he added.

Zappos said it was recommending that customers change their passwords including on any other website where they use the same or similar password.

The company, which is well known for its customer service, said due to the high volume of customer calls it is expecting it will temporarily switch off its phones and direct customers to contact via e-mail.

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